7. OIL

Participation in IEA collective actions

As an IEA member country, the United States participated in the three IEA collective actions. The administration responded by making the required amount of stock (100% of which was crude oil) available from the SPR by market tender. At the federal government level, oil demand restraint is not among the policy options available for use during an oil supply disruption. The United States used demand restraint measures in the 1970s by imposing a national speed limit of 55 miles per hour and restricting gasoline purchases to odd and even days corresponding to vehicle licence plates. However, none of these programmes are now active, and some of the underpinning legislation has since been repealed. US oil demand restraint policies and regulations exist at the state level and vary from state to state. During Hurricane Sandy, the New York City mayor issued an executive order (number 163) on 8 November 2012 restricting gasoline purchases to odd and even days corresponding to vehicle licence plates. The federal government allows each state to determine the scope and use of demand restraint measures, and aside from information sharing, there is little demand restraint policy co-ordination between states.

Assessment

Oil upstream

Oil is the dominant energy source in the energy mix of the United States, accounting for 36.5% of TPES. Domestic oil production boomed in the last decade, mostly by developing unconventional LTO through hydraulic fracturing and horizontal drilling techniques that allowed the country’s oil import dependency to drop from 65% in 2008 to 25% in 2018.

The regulatory environment has been revised to facilitate crude oil exports, such as the suspension of the crude oil export ban in 2015 and the lowering of the domestic corporate tax level. Moreover, domestic refining infrastructure is still geared to heavier and sourer crudes, supporting the case for LTO exports.

The United States became the largest crude oil producer in 2018, mainly due to increased LTO production. Thanks to short drilling completion times and lean cost structures, the industry was able to quickly adapt to changing market conditions, as demonstrated in the last five years with volatile oil prices. However, for conventional offshore oil in the Gulf of Mexico, the last three to four years have proved challenging as low crude oil prices have slowed down investments. Furthermore, no major discoveries have been made in recent years, and the industry is facing output losses from post-peak conventional crude oil fields. The US Gulf of Mexico accounts for 18% of US crude oil production; and the Gulf of Mexico OCS covering about 160 million acres, is estimated to contain about 48 billion barrels of undiscovered, technically recoverable oil and 141 trillion cubic feet (4.0 trillion cubic metres) of undiscovered, technically recoverable gas.

To unlock these resources, the BOEM has embarked upon five-year lease programmes for the OCS. The most recent development was a BOEM proposal to offer 78 million acres for a region-wide lease sale that took place in March 2019. Going forward with offshore permitting, also in other parts of the OCS, regulatory certainty and stability for exploration and production investment decisions are paramount. This calls for

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streamlined regulatory processes that do not cause unnecessary delays. For instance, early engagement with local communities and joint spatial planning are important to ensure that the development of offshore resources does not result in negative impacts on local activities (e.g. fishing interests, maritime activities).

Technology R&D has been the driver for continuous innovation, for both the unconventional and conventional oil and gas sectors. Research-based innovation is considered vital for the longevity of the oil and gas industry and a prerequisite for maintaining and growing output. One key technology area is CCUS for EOR and to reduce CO2 emissions. In February 2018, Congress passed a bill that extends and enhances an existing tax credit regime (45Q), which encourages CO2 injection for improving oil recovery rates. The tax credit increase, from USD 10 to USD 35 per tonne of stored CO2, has been well received by the oil industry.

Recognising the need for basin-specific technologies for unconventional oil and gas, the DOE is supporting development of different methods to deal with subsurface challenges, and thus ensures maximum value creation in the unconventional oil and gas sector. There is further room for improvement to share best practices and promote innovative technologies among industry players.

Oil markets

In 2018, refinery crude oil intake in the United States reached a record high of 17.0 mb/d, with a monthly record of 17.7 mb/d set in June. Capacity utilisation rates were at 90%. There were 132 refineries in operation as of January 2019, with the top 10 refineries representing one-fourth of total capacity (18.8 mb/d). More than 45% of the nation's refining capacity is located along the US Gulf Coast; this region is the world’s largest exporter of refined products and delivered more than 4 mb/d of gasoline and diesel in 2017 to both domestic (Northeast and Midwest) and overseas markets (Latin America, Europe and Asia). The share of exports has increased significantly over the last five years and reached almost half of total output by 2017. The United States has boosted its export capacity and strengthened its position as a net oil products exporter. During 2018, the net export of motor gasoline was 692 kb/d; diesel net exports reached 1 042 kb/d and jet fuel 53 kb/d.

While US refining throughput is expected to increase further, the intake of conventional crude oil is unlikely to change as the increment will be fulfilled by heavy oil suppliers in Canada and domestic LTO; increased LTO output will likely be exported to emerging Asian countries.

The further expected increases in the production of crude oil and finished products come with challenges for the underlying transportation, storage and distribution infrastructure. Gulf Coast crude oil terminals are geared towards imports rather than exports, and due to their limited depth they cannot accommodate the largest tankers, causing some bottlenecks. In addition, the main crude oil pipelines in the United States were built to transport oil from the Gulf Coast to the Midwest. To absorb booming LTO output, investment in new pipeline capacity and terminals continues. One of the most important projects under design is the Keystone XL crude oil pipeline, for which a presidential permit was issued in 2017 and again in 2019. This pipeline is planned to transport crude oil from the Western Canadian Sedimentary Basin to Steele City in Nebraska. From there the crude oil will be transported through existing pipeline systems to supply refineries in Texas.

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